MGE's proposed rate change dismays conservationists

In 2006, Kurt Reinhold invested $20,000 installing solar panels on the roof of his home. A former high school science teacher, he was concerned about climate change and wanted to reduce his carbon emissions.

"I'm a firm believer in displacing more and more fossil fuels with renewable energy because of the accumulation of greenhouse gases in the atmosphere," says Reinhold. He works for Solar Connections, which helps homeowners and businesses install solar systems. "I'm a concerned citizen who wanted to set an example."

The investment was easier for him to make because Madison Gas and Electric -- like other power companies around the country -- credits customers with solar panels for extra energy their homes generate and feed back into the grid. Reinhold estimates he's just a few years away from paying off his investment.

But now MGE is proposing a sweeping restructuring of its rate plans for 2015, which critics say will have two effects: discouraging clean energy and conservation investments like Reinhold's and rewarding high-energy users. MGE officials insist the changes they're contemplating are an attempt to fairly structure its fees. But the undeniable fact is, low users of electricity will end up paying more for power.

Gregory Bollom, MGE's assistant vice president of energy planning, conceded this point at a city committee meeting Monday evening.

"If you're a low-energy user, you will probably have less ability to reduce your bill than someone who is a high-energy user," Bollom told the Sustainable Madison Committee. "We are reducing the incentive for people to reduce their energy use. I'm not going to quibble with that."

Ald. David Ahrens says MGE's plans fly in the face of the region's values regarding conservation and clean energy.

"There's broad and deep consensus in the community in support of conserving energy, supporting renewable energy sources, for the purpose of sustaining life on the planet," he says. "This proposal simply goes in the opposite direction."

Utilities calculate customers' bills using a variety of charges. Currently, MGE charges customers $10.40 a month -- or roughly 34 cents a day -- to connect to its power grid. It also charges about 14.4 cents for every kilowatt hour of energy a residential customer uses. The more energy you use, the more you pay. (Or, in Reinhold's case, the more power his home generates, the more he makes.)

The problem facing MGE -- and all other utilities -- is that people are increasingly conserving energy, and homes and appliances are becoming more efficient. That means utilities are selling less power, so revenues are down. However, the cost of maintaining an electric grid is not going down. So utilities are trying to charge customers higher fixed rates that will stay the same regardless of energy consumption.

Steve Kraus, MGE's manager of media relations, argues the current system is unfair, with high-energy users subsidizing low-energy users. Whether you use a lot of energy or very little, the cost of connecting to the grid is the same, he says.

"Customers who don't use very much power, they're not picking up their fair share of what it takes to bring electricity to their homes," Kraus says.

MGE's solution is to raise its fixed charges from about $10 a month to $19, starting Jan. 1. Meanwhile, it would reduce the cost of a kilowatt hour from 14.4 cents to 13.3 cents (these are averages, as actual rates vary between summer and winter). The Public Service Commission -- a three-member board -- will determine later this year whether to allow the rate change.

MGE had originally proposed changing rates even more in 2016, lowering kilowatt hour charges to 7.5 cents, while increasing fixed charges to $49 a month in 2016. The utility has put those proposed rates on hold.

A lower kilowatt hour rate means customers who invest in energy efficiency or install solar panels won't make up those investments as quickly through reduced energy bills. And the cost of those systems is becoming more affordable for homeowners. Reinhold says his system would cost about $10,000 now, half of what it did in 2006.

Reinhold says the proposed rate structure would discourage these investments. "Whether it's intentional or not, the effect would be to drastically suppress energy efficiency and, in my case, energy generation and pretty much reward high-end users."

MGE's long-term plan is to charge residents a new fee based on "peak power usage" -- how much energy they're drawing from the grid when use is highest.

This matters, because utilities generally rely on different power plants to produce energy, Kraus says.

"We have to have power available to you for peak demand, and we also have to have all the infrastructure that goes with it," Kraus says. "Some of these power plants only run for a few hours a year, and we have to have them ready to go. That's very costly. We have to put it in place, and it sits idle for all but a few hours a year."

Even as average energy use declines for most customers, peak-power demand continues to grow, Bollom says, forcing MGE to invest.

MGE has temporarily backed off charging residents a peak-power charge, but Kraus says "that's what we want to get to in a few years."

Large energy-using businesses are already monitored for their peak demand periods and distribute their energy use throughout the day to avoid spikes. But critics say that everyday folks won't have the know-how to do the same.

"This demand charge is so damn confusing and so elaborate," Ahrens says. "Your kid comes home from school and turns the air conditioner to 60 degrees, and lo and behold, you're now at a rate that is so much higher than your actual usage. Oscar Mayer really can control what their usage is. That's not true for many homeowners. They're not engineers, and they may not have the money to put in energy efficiency devices."

For people working to reduce energy use and pollution and stave off climate change, MGE's proposal raises major concerns.

Michael Vickerman, program and policy director with Renew Wisconsin, says that although utilities around the country are grappling with these issues, MGE is taking a particularly hard-line approach. His organization fears that the proposed changes will effectively kill investment in solar energy here.

"This is not happening in Minnesota, Iowa, Michigan, Illinois," he says. "Wisconsin is fashioning itself into an anti-solar island."

Reinhold says it's not just major investments like his solar-energy system that would be affected.

"Any kind of lighting or insulation or windows -- any energy-efficiency project that before would take five years to pay off now will take 10 or more years," he says.

Kraus counters that efficiency will still be rewarded, just not as much. In an email, he writes: "If our proposed rates are approved, a customer replacing one incandescent light bulb with an LED bulb would annually save $9.81 on the old rates (2014) and $9.04 on the proposed rates (2015)."

Tyson Cook, director of science and research for Clean Wisconsin, says that encouraging more energy consumption will eventually force the utility to build more power plants.

"Similarly, if its customers use a lot less electricity, [MGE] needs fewer power plants," says Cook.

He adds that MGE's proposed changes "take the financial risk away from the utility and put it on customers who won't have the ability to control how much money they spend on electricity. It locks in profits, but it takes away the ability from customers to affect their own bills."

Ahrens sponsored a resolution, which Madison's Common Council approved earlier this month, to hire an expert who will look at MGE's rates and figure out what would be an appropriate increase in the utility's monthly fixed rates.

He says MGE's proposal contradicts the company's carefully crafted image as a utility that cares about the community and environment.

"What is the real MGE? From the look of their public image, you'd think it was a conservation organization of some kind," Ahrens says. "When you look at where they want to go, it's the opposite."

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